The Hidden Networks Driving Healthcare Costs

The biggest problem in healthcare isn't cost. It's the invisible networks controlling who gets paid, who gets seen, and ultimately, who wins. Let's get into it. Welcome, and thank you for joining us for Healthcare Happy Hour, the official podcast of the National Association of Benefits and Insurance Professionals.

And I'm your host, David Saltzman. We are here with Jim Jusko. Jim is Chief Strategy Officer at Excel Health Plans, where he focuses on driving transparency and competition in the healthcare markets. He's also a leading voice on breaking down anti-competitive practices in pharmacy benefit managers and provider networks and what real reform could look like.

Hey, Jim, thanks for spending some time with us. Thank you, David. It's terrific to be here, and I'm very much looking forward to the conversation. Spend a little bit of time talking about how healthcare networks, whether they're PBMs or provider systems, quietly shape competition and pricing behind the scenes.

It has to do with incredible complexity and then what this allows. Because complexity exists in so many places across the system, certainly in pricing, billing, and payments. And, you know, there have been papers out of Stanford that have indicated that, you know, 28 cents out of, you know, pick your number, roughly 28 cents out of every health care dollar goes toward, you know, handling just the administration of, you know, of claims. But then also you've got the purchasing side.

When an employer goes into the marketplace and looks at plans, there are an innumerable amount of plans out there that they are faced with deciding, you know, which are the best, which five should we pick to offer our employees? So you have this selection problem. It's awful. It means that, you know, when an employee moves from one company to another, it makes it hard for them to assess which plan to be in.

It makes it really tough for HR professionals to understand what they should be getting. Imagine if we pulled up at the gas pump and there weren't three but 30 types of fuel to put in your car. And, okay, my car takes regular gas, so 15 of them would be eligible for my car. This kind of system, thank God, didn't evolve in fuels.

And often these kind of things sort themselves out when you have market forces working because ordinary market forces really push against complexity. But we have incredible complexity. And that allows people to raise prices and figure, well, people will notice so much. And then when you have all these price increases, sort of historically I'm going down here, then you get all the different payment funding mechanisms we have to have.

Because we have taken in this country for granted the idea that health care is expensive and that it's our national project to figure out how to pay its high prices. And when you start with that premise that it's expensive and my job is to figure out how to find the cash to pay for it, of course we get all these mechanisms to address that. We've got, you know, private insurance, cost-sharing ministries, subsidies from the federal government, incredible tax benefits. As we know, you know, many hospitals don't pay state, federal, or local taxes.

You know, the monies paid by employers are not for health care. Employee expenses are not taxed. We have all this stuff. And that's what we've done instead of look at the fundamental issues of why doesn't the marketplace work and why don't we have prices that are somewhat similar to our international peers.

That is sort of the story of why we are in a fix of what complexity does and how it's been taken advantage of by those who can handle it. And the more scale you have, the better you can handle complexity. And guess what? We get consolidation and market-dominant players and five massive, you know, health care insurers in the country.

And here we are. You mentioned that market forces were the things that moved people, you know, especially in Congress. And people take a close look at that. Is the reason it hasn't happened in part because the market forces are so fractured?

I mean, when I go to the pharmacy, I don't know what part of the cost of my drugs I'm paying for and where it's going. Employers don't know. Employees don't know. And has that given them a wall to hide behind?

Maybe if not fractured, market forces are really not existent. I was going to first say they're covered up and they're hidden and you don't see them. But I'd be fine if they're hidden, but they worked. You know, nobody faces nobody.

no hospital, let's say, or provider of services or, you know, drug maker or PBM really faces a true demand curve. A demand curve says, if I lower my prices, I can increase my market share. And if you're a, you know, a drug manufacturer or, you know, or a hospital, are you going to sit there as CEO and say, you know, I should lower my prices and bring more business in? That is not what gets you more business.

Your prices sort of are what they are. And you're better spending money on marketing to convince people that somehow you're better than the hospital down the street. So you asked a moment ago, though, about some of the specific kinds of things that, you know, that are permitted and maybe shouldn't be. They should be at least examined in the world of how hospitals do their negotiations.

Hospital systems, big multi-hospital health care owning systems really is what I'm talking about here. And it matters a lot. You know, we all know that hospital systems and services cost the average employer health plan about 50 percent of their spend goes into hospital services. And when hospitals come along and say, hey, you know what, I'll be in your network, but you cannot permit, you cannot create plans or permit plans to be created that put our hospital on a different tier level of coverage.

You can't incentivize anyone to use our hospital any less than they have an incentive to go to any other hospital. these things really tie the hands of any thoughtful benefit designer, whether you're, you know, inside, you know, an HR department at a company, but more likely you're in the, you know, you're in the advisor and benefits consultant space. You know we would all love to really have plans that strongly put different hospitals maybe on different tiers And this stuff is tough when you have anti contract provisions where hospital systems would say we cannot be treated any less favorably than anyone else And you cannot, you know, incentivize people and steer people with giving them, you know, better dollar deals to hospitals that are at one hospital versus another provider within our network.

Oh, and the all or nothing provisions, where if I am a multi-hospital system owner and I might say, look, if you want any one of my hospitals in your network, you have to accept all of my hospitals, even the hospitals in cities and towns for which there might be good or lower cost alternatives. So it's tough. And then that brings up the issue of, well, many people would say, well, fine, let's build plans that don't have to use these networks that operate under those rules. And we're living in a world where even small companies have people, employees living in many different states and cities.

And unless you have sort of a national network, it's tougher to build plans without them. But if we're going to have any kind of competition that hopes to drive down prices, we have to be able to build health plans, if someone wishes to, that don't have to rely on the five dominant national health care provider networks. And that's really tough. And we can do with laws that make these things easier.

And I'll give you some reasons in a minute, if you want, why we should have laws that even go further in making networks more open and transparent and fair priced. But that's maybe a different line of argument. And yet the hospital CEOs who don't want to lower their prices and compete on service or quality are just hungry for the steerage that they get from those five big carriers. So isn't it a little bit like being a little bit pregnant for them?

I mean, it's their kind of the part of the mix and also part of the problem. Yeah. And, you know, as the marketplace is today, I guess I don't blame them. they are there to get all the volume they can with the highest possible price.

But what they do, of course, is they talk to one dominant carrier and they make one deal, you know, some discount off their build charges in order to secure that deal. Then they go to the other and they make the best deal they can there. So they are practicing a logical and rational and legal form of price discrimination. You go to one carrier and get the highest price you can from them and another and another.

whether that kind of price discrimination should be permitted. You know, at the end of the day, as an employee of a company who's got a health plan, a health plan that I had no say as an employee and what my employer might have chosen, I go to that hospital and I'm subject to the price that that hospital negotiated for my carrier. You go to the same hospital on the same day, same doctor, same procedure, and ultimately you and your copay and your coinsurance and deductible is all subject to the price that was negotiated for your plan.

Is that fair when I am the ultimate party, despite my insurance, I am still the ultimate responsible party for the payment of my health care costs, and I have no ability to negotiate, and I'm subject to negotiations I had nothing to do with? I think there may be some arguments that would say hospitals should have one price. Set your price just like any provider, just like a grocery store sets a price for a can of beans on the counter. Everyone who walks in gets that price.

There are good arguments to say every hospital should have one price for commercial plans. Medicare and Medicaid, fine. Government programs, they got a special deal. But pick your price, Mr.

Hospital, for commercial plans, and that's the price for commercial services. And then hospitals will be forced to really pick a price that's closer to what I think a market clearing price would be. so that's one that's the that's the entry-level way to get some parity and fairness but we should talk about really what hospitals ought to be doing for the fact that so many of them are completely non-profit hospitals and having a few little programs to serve your community is probably not what most people think a non-profit hospital should do but that's another no because it's the same argument that i make one every time i'm in vegas i think of hospitals because all those big beautiful buildings, they didn't get built on somebody else's money.

They got built on your money. And it's the same thing with these allegedly nonprofit hospitals. And then, you know, on top of that, the nonprofit hospitals have bought up a lot of the regional little smaller hospitals. And when was the last time that a certificate of need was granted, you know, any place?

So they're not only cherry picking, they own the land the cherries are growing on. They have a secondary use for the pits and they overcharge all of us for it because it's not transparent. Yeah, yeah, it's really remarkable. I mean, the benefit is tremendous.

And the price isn't just sort of, you know, oh, we imagine, you know, foregone revenue at the national level. I mean, every time a major hospital system buys, you know, a local primary care practice or some other small regional hospital, those hospitals come off the payroll rolls of the county tax assessment, and that's less money for parks and schools and programs, you know, that is foregone, that is therefore borne by the residents and the other property owners in that area.

So you have really local effects too. Not to say that it shouldn't be done, but I think that, you know, state, federal, and county governments should sit back and look at what are we giving up and what is something reasonable to ask in return? and merely saying that the, you know, purpose of a hospital should have a nonprofit, you know, objective, which probably meets federal IRS, you know, tax rules, isn't really enough anymore. I think the idea is you have to run the hospital at a price level that is appropriate and respects the fact that lots of tax dollars are being foregone.

And I think there's things that can be given back. I mean, I'll go into one little type of policy proposal here that I think would be really interesting is to both encourage some competition and let plan designers and benefits consultants ultimately think about how to help their larger employer clients Direct hospital contracting is certainly a trend. It's an interesting opportunity to go and get better deals. But it is unwieldy in the way it's currently structured.

Every employer would have to work through their consultant and make a deal with the local hospitals. Too many contracts to manage. Big complexity. But if we had a national policy for standardized, universal, direct contracting, where, you know, every hospital was subject to, you know, a pre-approved contract form that would be standard across all hospitals in the U.

S., and it should probably also include some things hospitals would like. fast and full payment is something I believe hospitals deserve if they are going to lower their prices and really serve their members. And to have a system that would say, look, every hospital is, if an employer wants to, they have the absolute right to use this pre-approved contract.

They have to agree to fast and full payment. And in my view, full payment might mean 100% payment. If there's any member or patient share, the plan or the employer can collect that separately off their member. But let's take hospitals out of the collections business where they're instituting collections actions and suing patients for unpaid bills.

If you want to run a plan that way, great, go do that separately. And then as a society, what should we get in exchange for building contracts where hospitals get full and fast payment? Pricing control. Pricing control that is simply, you know, pick a number.

you know, 185, 200 percent of Medicare, maybe somewhere out there, a price where they know they can contract with hospitals and have the expectation of a reasonable price. And I am very in favor of a market working, but we have so much consolidation and monopoly and market dominant power in a lot of hospital systems that I think it's time for a pact, a fair trade where hospitals get something that makes them more efficient, builds their relationships with patients, but requires them to operate at a price which we know they can operate at.

I know I'm running on here, but how do we know what a fair price is? Hospitals own data on pricing and their finances is submitted in Medicare cost reports. The National Association of State Health Plans has a terrific, you know, service on their website where one can understand what a fair price for a hospital is. You can get a sense of where would a hospital break even at what kind of pricing and many hospitals can break even across the board at prices that are less than double what Medicare charges instead of the three and four times Medicare pricing that so many hospitals have.

So there's things that I think should be thought about in terms of proposals, but then we get back to Congress and getting Congress to do anything like this. You know, it's a lift, but it's not like they haven't done it. You know, every century we've seen something really meaningful done by Congress. In the 1800s, we had dominant railroad networks.

They undid those. In the 1900s, we had a dominant, you know, AT&T in telephone services. They undid that. And, you know, in the late 80s and 90s, we all remember DSL lines and companies like MCI and Sprint got in business offering low cost long distance because of the dominance of AT&T.

And even now, you can see it was, you know, we do this more recently with mobile phone networks. We've got big three, at least we have some competition among, you know, whatever Verizon, Sprint, and AT&T, but those networks license access to their networks to companies like Mint and Boost and U.S. Mobile.

You can have small players if you can get fair access to someone else's dominant network. And if health plans can get fair access to dominant provider networks, we can, you know, see a real movement in hospital pricing, which will lead the way for competition across the board. So while you're talking about scale and pricing, let's go back to the PBM universe for a minute. What does it mean that three PBMs control a majority of prescriptions in this country?

And how does that concentration impact both consumers and independent pharmacies? Yeah, three PBMs have grown in market power. not, you know, it gets into vertical integration and consolidation here, but we got three PBMs that are deeply associated with three major health insurers. And you look at company like Optum, of course, which owns one of them, but Optum now, of course, owns many doctor practices as well.

Gee, Optum has no problem paying high costs for, you know, their health plans, paying high costs for medical services and drugs when they're paying it to companies where they own the benefit of those profits. So, you know, we get there through some of the things we've talked about, you know, when there is complexity, when there's the ability for five dominant Buka carriers, you know, the blues at the United Cigna, when you have dominant carriers who decide they want to run all of their health plans pharmacy benefits through a single PBM, they're handing an incredible benefit that helps such PBM grow massively and become one of the three dominant ones.

So it's just a, it's a symptom of the larger issues around lack of competition and consolidation. Does that level of control exist anywhere else that you can think of in the economy? Because I'm hard pressed for an answer. Yeah, good question.

I am as well. I don't think it exists anywhere at that scale. I mean, health care is the largest industry in the largest economy the world has ever known. And the scale with which we have a growing concentration is unmatched.

So you know it interesting because you look at the step ladder of what government I think and I think most people would agree there like four steps to what government should do when it faced with these things with any industry that is critical and essential to Americans well You know one generally our government looks to foster a functional market in any area so that prices are managed, services are competitive, and so on. And you do that, government does through standardization, transparency, and non-discrimination.

There's these all, you know, these things that government can rightfully do. And therefore, at very late to the table, transparency and in fact, good legislation like the Patients Deserved Price Tags Act and other things are in front of Congress now, two decades to, you know, late, but at least we are there now with real transparency efforts. But I don't know that fostering a functional market through these things is enough. And what else should government do at the second level is enforced antitrust laws.

That horse has pretty much already left the barn. It's possible. And the DOJ brought a lawsuit in New York in February because of some anti-competitive actions, I think, involving New York Presbyterian. And you can go back to the stories of 32BJ Union and their good efforts in New York to be able to foster some competition and reward fair price providers.

But antitrust laws, there may be some room there, but boy, that's tough because undoing the consolidation that's happened is very tough. And then the third step, if you can't do the first two, is responsible regulation. And I would say we have responsibly regulated or, you know, and broken apart, you know, industries when the time has come. But there is some regulation.

And then we get to those questions of, could we impose regulations that remove the ability to have these anti-competitive practices in network contracting? And there's a lot of room for that right now. And then, and this example that we've been talking about, about PBMs, is an example of government regulation that is stepping in to prevent, you know, these kind of anti-competitive practices. So there's hope there.

Because I don't really, you know, there are, the fourth step is the step that is the big one that has been talked about, and it's highly controversial, and that's whether government should simply be in the business of providing services directly. But if the first three steps on the ladder fail, you know, you do turn, We have government-owned utilities and infrastructure and places where it is absolutely necessary. And we face as a country the great question of whether it is or isn't absolutely necessary to have the government simply, you know, expand its provision of health care.

We do a lot of things well through markets, and I think we'd be well served to make a serious effort to fix our marketplaces before we go there. But that's the last step. Yeah, absolutely. So we got about a minute or two left.

let's kind of zoom out and bring this home. What would a truly competitive, transparent healthcare system look like? And how far away are we in reality? Not in what we wish would happen, but in reality.

We are far. It's taken decades to get here. And it will take years, even if there is the commitment to have, you know, a real functional market. No question that transparency, not only for pricing, but transparency of any real payer.

And I don't mean, you know, Blue Cross Blue Shield and United, as we know, they process other people's payments. They don't really pay. People who pay are the, you know, when it's the employer world, it's employers that are buying health plans. Transparency into exactly how money is being spent, claims level data in its incredible detail is necessary.

So transparency is a foundation for any fundamental market. and, you know, good steps can go in that direction. Patients' price tags act and other things can help us there. But then you hit the question of after transparency, competition has to be fostered and that will take states can do a lot on their own.

So I don't want to keep saying Congress, Congress, Congress. We can do some of this state by state. But, you know, preventing terrible anti-competitive practices in big contracting between major health systems and provider networks that have an unholy alliance would go a long way to opening up competition. And by the way, for individual practices, I mean, ambulatory surgical centers and other things are growing in their, you know, in their space.

Movements like the Free Market Medical Association is also out there encouraging independent practices, but we just have so few independent practices because of market-dominant players buying them up. And I refer there to the big multi-hospital health systems. So we've got a few things to do. We can help it, state and federal.

And, you know, we can encourage employers to look for products that are independently built, that do everything they can to contain costs and reward members for prudent medical choices. But I think at the end of the day, too, we do have a reckoning as a country. Do we want to consider cost when purchasing medical services in the same way we consider cost in everything else? Or do we want to try to live in a world that says, um, cost is irrelevant.

We just need, I, as an individual, I just need my healthcare and I should be insulated completely from questions of cost. I, I don't think we'll go well if we want the second. Emotionally, I would love to live in that world, but as a practical matter and seeing where we are with how healthcare consumes American dollars, I don't think we can. I don't think we can afford it.

And that's a great place to end our conversation for today. Jim Jusko, Chief Strategy Officer at Excel Health Plan. Jim, thank you for a fascinating conversation. Thank you, David.

It was a pleasure. You can have the Healthcare Happy Hour podcast downloaded automatically by subscribing on Apple podcasts or Spotify. You can also find a link to the podcast in the member-exclusive Washington Update published on Fridays. For more information on our government affairs efforts or to become a member, visit nabip.

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